Abercrombie & Fitch 2011 Annual Report Download - page 30

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ITEM 3. LEGAL PROCEEDINGS.
A&F is a defendant in lawsuits and other adversary proceedings arising in the ordinary course of
business. Legal costs incurred in connection with the resolution of claims and lawsuits are generally
expensed as incurred, and the Company establishes reserves for the outcome of litigation where it deems
appropriate to do so under applicable accounting rules. Moreover, the Company’s assessment of the current
exposure could change in the event of the discovery of additional facts with respect to legal matters
pending against the Company or determinations by judges, juries, administrative agencies or other finders
of fact that are not in accordance with the Company’s evaluation of claims. Actual liabilities may exceed
the amounts reserved, and there can be no assurance that final resolution of these matters will not have a
material adverse effect on the Company’s financial condition, results of operations or cash flows.
The Company intends to defend the following pending matters vigorously, as appropriate. The
Company’s identified contingencies include the following matters:
On September 16, 2005, a derivative action, styled The Booth Family Trust v. Michael S. Jeffries, et
al., was filed in the United States District Court for the Southern District of Ohio, naming A&F as a
nominal defendant and seeking to assert claims for unspecified damages against nine of A&F’s present and
former directors, alleging various breaches of the directors’ fiduciary duty and seeking equitable and
monetary relief. In the following three months, four similar derivative actions were filed (three in the
United States District Court for the Southern District of Ohio and one in the Court of Common Pleas for
Franklin County, Ohio) against present and former directors of A&F alleging various breaches of the
directors’ fiduciary duty allegedly arising out of antecedent employment law and securities class actions
brought against the Company. A consolidated amended derivative complaint was filed in the federal
proceeding on July 10, 2006. On February 16, 2007, A&F announced that its Board of Directors had
received a report of the Special Litigation Committee established by the Board to investigate and act with
respect to claims asserted in the derivative cases, which concluded that there was no evidence to support
the asserted claims and directed the Company to seek dismissal of the derivative cases. On September 10,
2007, the Company moved to dismiss the federal derivative cases on the authority of the Special Litigation
Committee Report. On March 12, 2009, the Company’s motion was granted and, on April 10, 2009,
plaintiffs filed an appeal from the order of dismissal in the United States Court of Appeals for the Sixth
Circuit. On April 5, 2011, a panel of the United States Court of Appeals for the Sixth Circuit reversed the
decision of the District Court and remanded the action for further proceedings. On November 1, 2011, the
District Court entered an order which gave preliminary approval to a proposed settlement of the
consolidated derivative litigation. The District Court also set a hearing (the “Fairness Hearing”) for
December 13, 2011 to determine whether the proposed settlement should be finally approved and to
consider an award of fees and expenses to plaintiffs’ counsel. The District Court also directed that notice be
given to the Company’s stockholders concerning the proposed settlement and their right to be heard in
connection with the Fairness Hearing. On December 19, 2011, the District Court, after the Fairness
Hearing, entered a final order (1) approving the proposed settlement submitted to the District Court by the
parties to the derivative litigation and (2) dismissing with prejudice all claims contained in the 2005
derivative cases. The District Court’s order also resulted in dismissal of the state-court derivative action,
which had been stayed pending resolution of the federal derivative cases.
On December 21, 2007, Spencer de la Cruz, a former employee, filed an action against
Abercrombie & Fitch Co. and Abercrombie & Fitch Stores, Inc. (collectively, the “Defendants”) in the
Superior Court of Orange County, California (the “Court”). He sought to allege, on behalf of himself and a
putative class of past and present employees in the period beginning on December 19, 2003, claims for
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